The importance of ESG – Environmental, Social & Governance

|  August 19, 2024

🕓 Reading time 5 minutes

Table of contents

1. What is behind “E” – Environmental or Environment?
2. What is behind “S” – Social?
3. What is behind “G” – governance or corporate management?

What is behind “E” – Environmental?

The environmental component, also called "environmental," is a central component of the ESG strategy and is the focus of many companies that want to improve their sustainability practices. It refers to the impact a company has on the environment and includes various measures to reduce its ecological footprint. An essential aspect of this is the Recording and reducing greenhouse gas emissions, which often forms the starting point for a comprehensive ESG program.

Important topics under “E”

☁️ Climate change and greenhouse gas emissions

Climate change is one of the most pressing global problems of our time. Companies are therefore under increasing pressure to reduce their greenhouse gas emissions. The first step in this process is often to create a greenhouse gas inventory of Scope 1, 2 and 3, also known as Corporate Carbon Footprint (CCF). This accounting enables companies to record and analyze their direct and indirect emissions, which in turn forms the basis for targeted reduction measures.

🔋 Resource conservation and energy efficiency

Sustainable resource use is another important component of the environmental component. Companies must optimize their energy consumption and use resources such as water and raw materials efficiently. The insights gained from greenhouse gas footprinting often help identify and improve inefficient processes.

🗑️ Waste management and circular economy

The transition to a circular economy, where materials are reused and recycled, is a key goal of many companies' ESG strategies. Reducing waste and promoting recycling efforts contribute significantly to reducing environmental impact.

🐾 Biodiversity and protection of natural habitats

Companies also bear responsibility for preserving biodiversity and protecting natural habitats. Companies can make a positive contribution through sustainable land use and the protection of forests and other ecosystems.

💧 Water consumption and management

Efficient water management is another important aspect of environmental protection. Companies must ensure that they use water resources efficiently and take measures to prevent water pollution.

Why is “Environmental” important?

The environmental aspect is often the first area that companies focus on as part of their ESG strategy, particularly through Preparation of a greenhouse gas balance. This balance forms the basis for all further measures to improve environmental sustainability and helps to identify and specifically address emission sources. Companies that invest in this area not only benefit from a better environmental profile but also reduce risks, that go hand in hand with regulatory requirements and societal expectations. The consistent implementation of measures to reduce emissions and conserve resources not only contributes to environmental protection but also strengthens a company's long-term competitiveness and attractiveness.

What is behind “S” – Social?

The social aspect of ESG focuses on a company's relationships with people and communities. It is about responsibility toward employees, customers, suppliers, and society, with a focus on ethical conduct and social responsibility.

Important topics under “S”

👨‍🏭 Working conditions and employee well-being

The focus here is on creating fair and safe working conditions. Companies ensure fair pay, workplace safety, and employee well-being. A positive corporate culture that promotes employee satisfaction is crucial to business success.

⚖️ Diversity, inclusion and equality

Companies foster a diverse workforce and an inclusive culture that ensures equal opportunities for all employees. Diversity and inclusion lead to a more creative and productive work environment, which supports long-term success.

🔗 Supply chain responsibility

Companies also bear responsibility for their supply chain. They ensure that suppliers adhere to ethical standards, such as labor rights and fair trade practices. This strengthens the integrity of the entire value chain.

👨‍👩‍👧‍👦 Community involvement

Companies engage in the communities in which they operate through donations, volunteerism, and supporting local projects. This commitment strengthens the company's image and public trust.

📖 Human rights and ethical behavior

Respect for human rights is central to the social aspect of ESG. Companies must ensure that their practices respect these rights and promote ethical behavior in all areas.

Why is “social” important?

The social aspect of ESG is important because it increases employee satisfaction, which leads to higher productivity and lower turnover. It also strengthens customer trust and loyalty by promoting ethical behavior and social responsibility. Good social engagement improves a company's image and contributes to long-term stability.

What is behind “G” – governance or corporate management?

Governance refers to corporate management and encompasses the systems and processes that ensure a company is managed ethically, responsibly, and transparently. This component is critical to stakeholder trust and the long-term success of a company.

Important topics under “G”

🧾 Transparency and accountability

Companies must provide clear and accessible information about their finances and decision-making processes to ensure transparency. Accountability means that managers are held accountable for their decisions, supported by regular reports and independent audits.

⚠️ Integrity and risk management

Integrity requires companies to maintain high ethical standards and ensure compliance with laws and regulations. Effective risk management identifies and manages potential risks, while a strong compliance program avoids legal issues.

🎙️ Stakeholder engagement and leadership culture

Good governance considers the interests of all stakeholders and promotes a corporate culture that supports ethical behavior and transparency. Regular communication and stakeholder involvement in decision-making processes strengthen trust and loyalty.

Why is governance important?

Governance is important because it ensures that a company is managed transparently, ethically, and responsibly, which strengthens stakeholder trust. It minimizes risks through clear rules and processes that ensure legal and financial stability. Good governance supports the long-term sustainability and success of a company by fostering a positive leadership culture.